American United Life Pooled Equity Fund B
BOARD OF MANAGERS
JAMES W. MURPHY, Chairman
Senior Vice President,
Corporate Finance, AUL
RONALD D. ANDERSON Professor,
Kelley School of Business,
Indiana University, Indianapolis, Indiana
LESLIE LENKOWSKY Professor,
Indiana University Center of Philanthropy,
Indianapolis, Indiana
R. STEPHEN RADCLIFFE
Executive Vice President, AUL
JAMES P. SHANAHAN
Former Senior Vice President,
Pension Division, AUL
RICHARD A. WACKER Secretary to the
Board, Associate General Counsel, AUL
CUSTODIAN
National City Bank Indianapolis, Indiana
LEGAL COUNSEL
Ice Miller Donadio
& Ryan Indianapolis, Indiana
INVESTMENT MANAGER
American United Life
Insurance Company Indianapolis, Indiana
G. David Sapp,
Senior Vice President, Investments
This Report and the financial statements contained herein are for the
general information of the partici-pants. The report is not to be
distributed to pro-spective investors as sales literature unless preceded
or accompanied by an effective Prospectus which contains further
information concerning the sales charge, expenses and other pertinent
information.
American
United
Life
Pooled
Equity
Fund B
Annual Report
as of
December 31, 1999
<PAGE>
A Message
From
The Chairman of the Board
of Managers
To All Participants in Fund B
It is with great pleasure that I welcome you to the year 2000. Although
doomsayers hypothesized potential calamities due to year 2000 computer problems,
I am happy to announce an uneventful transition into this new era.
The year 1999 can be characterized by its excesses. Technology companies
rocketed to new highs even though the majority of stocks registered poor
performance. New records were set in the IPO (initial public offering) market
with well know names such as UPS and Goldman Sachs. Technology start-ups were
prolific as investors seemed to have an insatiable appetite for Internet
retailers, web-site operators and anything carrying the dot-com title. It was
also the year of megamergers, the launch of the euro, and the recovery from
Asias financial woes.
Politically, President Clintons impeachment trial ended in an acquittal.
Afterwards, most individuals quickly shifted their focus to the next
presidential election. The courts concluded that Microsoft acted as a predatory
monopolist. Barriers separating banking and securities firms were lifted, and
major U.S. equity markets began extended trading.
The U.S. economic expansion has also been unique in that it has lasted for nine
years, making it the longest period of economic growth on record. The fact that
our economy has endured only eight months of recession since 1982 is another
unparalleled feat.
Although inflation has not been a problem up to now, the Federal Reserve Board
felt compelled to take a pre-emptive stance last year by raising the Federal
Funds rate on three different occasions. The continued momentum of the economy
suggests that the Feds credit tightening had little apparent impact. The
Federal Reserve is expected to raise rates further this year to help achieve a
sustainable rate of economic growth.
Most economists are expecting the economy to continue on its current path, but
to moderate somewhat from current levels. The equity market is also expected to
report positive returns, but could experience a change or moderation in
leadership. We encourage your careful review of the comments of the Portfolio
Manager on the following page.
Investment performance for Fund B for calendar year 1999 was -0.8%. This
performance is net of investment advisory fees but does not reflect mortality
and expense risk charges and other charges that may be incurred when investing
in a variable annuity contract.
/s/James W. Murphy
James W. Murphy
Chairman of the Board of Managers
Indianapolis, Indiana
January 31, 2000
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<PAGE>
A Message
From
Kathryn Hudspeth,
Portfolio Manager
of Fund B
Fund B invests primarily in equity securities selected on the basis of
fundamental investment research for their long-term growth prospects. The
Portfolio uses a value-driven approach in selecting securities, concentrating on
companies which appear undervalued compared to the market and to their own
historic valuation levels.
Last year was extremely volatile for the stock market with most major equity
indices ending the year in record territory. Yet these impressive gains masked
the narrowness and deterioration of the overall market. Over half of the
companies included in the S&P 500 posted negative returns for 1999. Nearly 70%
of the stocks listed on the NYSE declined in value last year. In essence, the
bull market of 1999 was driven primarily by one sector, which was technology.
The technology sector, which has experienced high earnings growth rates in
recent years, staged its own raging bull market while the rest of the
marketplace languished. Whether through on-line shopping, new computer operating
systems, or simply expanded use of personal computers or cellular telephones,
this seemed to be the only theme that investors found appealing during the year.
Most investors seemed willing to buy these companies regardless of their price
or valuation. Investors deciding not to be overweighted in this narrow
leadership experienced relatively poor performance.
Fund B, which invests in value companies, utilizes a disciplined, value approach
when selecting companies. Since technology companies trading at excessive
premiums relative to the marketplace cannot normally be justified as value
companies, Fund B was underweighted in this sector last year. This was the
primary reason why the investment return for Fund B lagged the return of the S&P
500, a commonly used stock benchmark. In an environment where the merits of
fundamentals have been overlooked, the common reaction has been to put aside the
traditional valuation tools and jump onto the technology bandwagon. While this
was, no doubt, a very successful strategy last year, it is unlikely that this
extended sector can continue at its current pace indefinitely.
Instead, we believe superior investment opportunities exist in strong,
well-managed companies with improving fundamentals which are trading at
historically low valuations. As a result, Fund B has heavy positions in
commodity and cyclical companies, many of which have lagged the market in recent
years due to weak commodity prices and slower earnings growth. However,
commodity prices are beginning to firm, and we expect dramatic earnings
improvement for these companies. As earnings begin to increase, this improvement
should be reflected in stock prices, a process which was already occurring by
the end of last year.
The exuberance in the technology sector has caused widely divergent trends in
pricing and valuation. With technology trading at historically expensive levels,
there appears to be little room (if any) for error with regard to earnings
performance for these companies. If the market broadens out, it would improve
the prospects for value stocks which are posed for a dramatic recovery in
relative earnings momentum. We believe that valuation should matter once again.
2
<PAGE>
American United Life Pooled Equity Fund B
Fund B S&P 500
Date Year Hypothetical Hypothetical
$10,000 $10,000
Investment Investment
12/89 1989 10,000 10,000
3/90 1990 9,854 9,699
6/90 1990 10,255 10,309
9/90 1990 8,844 8,893
12/90 1990 9,605 9,689
3/91 1991 11,241 11,097
6/91 1991 11,563 11,072
9/91 1991 11,715 11,664
12/91 1991 12,075 12,642
3/92 1992 12,458 12,322
6/92 1992 12,579 12,557
9/92 1992 12,517 12,953
12/92 1992 13,323 13,604
3/93 1993 14,232 14,199
6/93 1993 14,303 14,268
9/93 1993 14,962 14,636
12/93 1993 16,044 14,976
3/94 1994 16,071 14,408
6/94 1994 15,774 14,469
9/94 1994 16,678 15,176
12/94 1994 16,514 15,173
3/95 1995 17,101 16,651
6/95 1995 18,539 18,241
9/95 1995 19,645 19,691
12/95 1995 19,989 20,877
3/96 1996 20,799 21,998
6/96 1996 21,726 22,986
9/96 1996 22,702 23,696
12/96 1996 23,951 25,672
3/97 1997 24,427 26,360
6/97 1997 28,172 30,963
9/97 1997 31,420 33,282
12/97 1997 31,414 34,237
3/98 1998 34,539 39,013
6/98 1998 34,470 40,301
9/98 1998 29,934 36,291
12/98 1998 33,799 44,021
3/99 1999 33,832 46,208
6/99 1999 37,534 49,457
9/99 1999 33,833 46,356
12/99 1999 33,511 53,272
Average Annual Total Returns for the period ended December 31, 1999
Fund B S&P 500
One Year (0.8%) 21.0%
Five Years 15.2% 28.5%
Ten Years 12.9% 18.2%
Value of a hypothetical $10,000
investment made 12/31/89 $33,511 $53,272
The charts above show the Fund B Portfolios total returns, which include
reinvestment of dividends and capital gains. Figures for the S&P 500, an
unmanaged index of common stocks, include reinvestment of dividends and capital
gains. Investors cannot directly invest in an index. S&P 500 is a registered
trademark of Standard & Poors Corporation.
Performance numbers are net of all portfolio operating expenses, but do not
include any separate account or contract charges. If performance data included
the effect of these charges, returns would be lower. Past performance is no
guarantee of future results. Principal and investment return will vary so units
may be worth more or less than their original cost when redeemed
3
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<PAGE>
Report of Independent Accountants
Board of Managers and Contract Owners
American United Life Pooled Equity Fund B
In our opinion, the accompanying statement of net assets, including the schedule
of investments, and the related statements of operations and of changes in net
assets and the financial highlights present fairly, in all material respects,
the financial position of American United Life Pooled Equity Fund B (the Fund)
at December 31, 1999, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
financial statements) are the responsibility of the Funds management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
/s/ PriceWaterhouseCoopers LLP
Indianapolis, Indiana
February 7, 2000
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<PAGE>
American United Life Pooled Equity Fund B
STATEMENT OF NET ASSETS
December 31,1999
Assets:
Investments at value (cost: $9,440,223)
Common stock $ 9,805,994
Money market mutual funds 507,794
Receivable for investments sold 144,090
Dividends and interest receivable 12,921
Total assets 10,470,799
Liabilities: 0
Net Assets: $10,470,799
Units outstanding 652,584
Accumulation Unit Value $ 16.04
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
American United Life Pooled Equity Fund B
STATEMENT OF OPERATIONS
for the year ended December 31, 1999
Net Investment Income:
Income
Dividends $ 275,259
Interest 903
276,162
Expenses
Investment management services 38,231
Mortality and expense charges 114,696
152,927
Net investment income 123,235
Gain on Investments:
Net realized gain 2,865,670
Net change in unrealized appreciation (3,109,795)
Net Loss (244,125)
Decrease in Net Assets from Operations $ (120,890)
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
American United Life Pooled Equity Fund B
STATEMENTS OF CHANGES IN NET ASSETS
Year ended Year ended
Dec. 31, 1999 Dec. 31, 1998
Operations:
Net investment income $ 123,235 $ 127,096
Net realized gain 2,865,670 2,519,736
Net change in unrealized appreciation (3,109,795) (1,728,633)
Increase (Decrease) in net assets from operations (120,890) 918,199
Changes from Contract Owner Transactions:
Proceeds from units sold 101,771 273,438
Payments for units withdrawn (3,241,387) (1,735,807)
Payments for units redeemed (1,601) (2,460)
Decrease (3,141,217) (1,464,829)
Net decrease in net assets (3,262,107) (546,630)
Net Assets at beginning year 13,732,906 14,279,536
Net Assets at end of year $10,470,799 $13,732,906
Units sold 5,977 17,400
Units withdrawn (194,455) (108,807)
Units redeemed (60) (153)
Net decrease in units outstanding (188,538) (91,560)
Units outstanding at beginning of year 841,122 932,682
Units outstanding at end of year 652,584 841,122
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
American United Life Pooled Equity Fund B
SCHEDULE OF INVESTMENTS
December 31, 1999
Market
Description Shares Value
Common Stock (95.1%)
Aerospace (3.4%)
Boeing Co. 2,800 $ 116,025
Precision Castparts Corporation 8,900 233,625
349,650
Automotive & Auto Parts (9.9%)
Bandag Inc. 9,200 230,000
Carlisle Companies 7,900 284,400
Ford Motor Co. 6,300 335,869
TBC Corporation* 28,100 175,625
1,025,894
Banks & Financial (10.4%)
Associates First Capital 6,898 189,263
Bank One Corporation 4,232 135,424
Citigroup, Inc. 4,916 273,760
Ohio Casualty Corporation 15,800 253,788
Washington Mutual 8,555 221,361
1,073,596
Broadcasting & Publishing (3.4%)
Chris-Craft Industries, Inc.* 2,986 215,365
Meredith Corporation 3,200 133,400
348,765
Building (3.8%)
Fleetwood Enterprises 12,700 261,938
Huttig Building Products 1,356 6,693
Toll Brothers, Inc. 6,700 124,788
393,419
Computer Hardware & Software (3.4%)
Autodesk Software 6,800 229,500
International Business Machines 1,100 118,662
348,162
Diversified Manufacturing (2.8%)
Crane Co. 6,100 121,237
Trinity Industries 5,800 164,938
286,175
*does not pay cash dividends
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
American United Life Pooled Equity Fund B
SCHEDULE OF INVESTMENTS (continued)
December 31, 1999
Market
Description Shares Value
Common Stock (95.1%), continued
Furniture & Apparel (13.8%)
Hillenbrand Industries, Inc. 5,800 $ 183,787
Kellwood Corporation 10,600 206,038
Kimball International 9,200 151,800
La Z Boy Chair Company 18,100 304,306
Liz Claiborne, Inc. 10,100 380,013
Reebok International* 24,300 198,956
1,424,900
Health Care (1.5%)
Acuson Corporation* 9,700 121,856
McKesson HBOC, Inc. 1,400 31,500
153,356
Machinery (3.0%)
Baldor Electric Company 17,040 308,850
308,850
Metals & Mining (13.1%)
AK Steel Holding Corporation 15,500 292,563
Alcoa, Inc. 5,300 439,900
Cleveland Cliffs, Inc. 6,400 199,200
Oregon Steel Mills, Inc. 17,100 135,731
Phelps Dodge Corporation 4,200 282,975
1,350,369
Oil & Oil Services (9.6%)
Royal Dutch Petroleum Company 5,300 320,981
Tidewater, Inc. 10,100 363,600
Valero Energy Corporation 15,300 304,088
988,669
*does not pay cash dividends
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
American United Life Pooled Equity Fund B
SCHEDULE OF INVESTMENTS (continued)
December 31, 1999
Market
Description Shares Value
Common Stock (95.1%), continued
Retail (5.8%)
Gymboree Corporation* 21,800 $ 122,625
Lands End, Inc.* 4,600 159,850
Longs Drug Stores Corporation 12,100 312,330
594,805
Transportation (4.8%)
Alexander & Baldwin, Inc. 13,200 301,125
Norfolk Southern Corporation 9,600 196,800
497,925
Miscellaneous (6.4%)
Kelly Services 9,400 236,174
Michael Foods, Inc. 10,300 253,638
PG & E Corporation 8,373 171,647
661,459
Total common stock (cost: $8,932,429) 9,805,994
Money Market Mutual Funds (4.9%)
Armada Money Market Fund 205,145 205,145
Dreyfus Cash Management 151,391 151,391
Merrill Lynch Institutional Fund 151,258 151,258
Total money market mutual funds (cost: $507,794) 507,794
Total investments (cost: $9,440,223) $10,313,788
*does not pay cash dividends
All investments are in United States enterprises.
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
American United Life Pooled Equity Fund B (Fund B) is registered under the
Investment Company Act of 1940 as an open-end, diversified management investment
company. Fund B was established by and is managed by American United Life
Insurance Company (AUL) for the purpose of issuing group and individual
variable annuities.
Investments are valued at closing prices for those securities traded on
organized exchanges and at bid prices for securities traded over-the-counter.
Gains and losses on the sale of investments are determined on a first-in,
first-out (FIFO) basis. Investment transactions are accounted for on a trade
date basis.
Dividends are included in income as of the ex-dividend date. Interest income is
accrued daily.
Operations of Fund B are part of, and are taxed with, the operations of AUL,
which is taxed as a life insurance company under the Internal Revenue Code.
Under current law, investment income, including realized and unrealized capital
gains of Fund B, is not taxed to AUL to the extent it is applied to increase
reserves under the contracts. Fund B has not been charged for federal and state
income taxes since none have been imposed.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
2. Investments
Net realized gain and unrealized appreciation on investments is summarized
below.
Common
Stock
Net Realized Gain:
Proceeds from securities sold $ 7,189,166
Cost of securities sold 4,323,496
$ 2,865,670
Net change in Unrealized Appreciation:
Market value at end of period $ 9,805,994
Less: investments purchased (4,436,663)
Add: investments sold at cost 4,323,496
Less: market value at beginning of year (12,802,622)
$ (3,109,795)
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NOTES TO FINANCIAL STATEMENTS (continued)
3. Transactions With AUL
Fund B pays AUL an annual fee of 1.2% of its average daily net assets for
providing investment management services and for mortality and expense charges.
The expenses incurred during the years ended December 31, 1999 and 1998 were
$152,927 and $170,061, respectively.
AUL withholds a portion of the proceeds obtained from contract owners to pay
commissions and certain expenses under a sales and administrative services
agreement with Fund B. The amount AUL retained during the years ended December
31, 1999 and 1998 were $3,709 and $8,980, respectively.
4. Net Assets
Net assets as of December 31, 1999:
Proceeds from units sold less payments
for units withdrawn and redeemed $ (12,548,483)
Net investment income 4,349,762
Net realized gains 17,795,955
Unrealized appreciation 873,565
$ 10,470,799
The unrealized appreciation of $873,565 consists of common stock appreciation
and depreciation of $2,191,485 and $1,317,920, respectively.
14
<PAGE>
FINANCIAL HIGHLIGHTS
The per unit amounts are based on average units outstanding throughout the year.
<TABLE>
<CAPTION>
Year Ended December 31
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
Investment income $ 0.36 $ 0.33 $ 0.28 $ 0.26 $ 0.24
Expenses 0.20 0.19 0.16 0.13 0.11
Net investment income 0.16 0.14 0.12 0.13 0.13
Net realized gain and unrealized
appreciation on investments (0.44) 0.87 3.42 1.73 1.52
Net increase (decrease) (0.28) 1.01 3.54 1.86 1.65
Value per unit:
Beginning of year 16.32 15.31 11.77 9.91 8.26
End of year $ 16.04 $ 16.32 $ 15.31 $ 11.77 $ 9.91
Ratio to Average Net
Assets:
Expenses 1.20% 1.20% 1.20% 1.20% 1.20%
Net investment income 0.97% 0.90% 0.90% 1.25% 1.39%
Total Return (0.8%) 7.6% 31.2% 19.8% 21.1%
Portfolio Turnover Rate 37% 29% 28% 18% 20%
Units outstanding 653 841 933 1,068 1,264
(in 000s)
</TABLE>
The accompanying notes are an integral part of the financial statements.
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American United Life Insurance Company
Pooled Equity Fund B
P.O. Box 1995
Indianapolis, IN 46206-9101
FIRST CLASS MAIL
P-9964B(1/00)
